Internet Retailing

HOW USEFUL IS THEORY IN EXPLAINING THE GROWTH OF INTERNET RETAILING?

Internet Retailing is the most groundbreaking and challenging innovation for the retail industry since the last two decades. It offers a new kind of distribution channel and incomparable options of collecting customer data and analysing buying patterns. Since it readiness for the market, online retailing has seen remarkable growth rates and begins to gain a significant share of total retail sales which results in a fundamental change of the overall sector. Therefore, this paper questions to what extent the different theories of change are appropriate to explain the development and expansion f the internet retail sector.

I. DEFINITION INTERNET RETAILING

As part of the E-Commerce sector the term вЂ?internet retailing’ describes the internet based purchase of material and digitized products and goods via the World Wide Web (www) to consumers. The focus lies on the “Business-to-Consumer” (B2C) relation. The following illustration categorizes internet retailing within the field of E-Commerce.

II. A BRIEF HISTORY OF E-COMMERCE

Although the invention of the internet technology lies back in the 1950s and 60s the breakthrough for commercial usage started in the 90s of the last century. At that point retailers discovered the internet possibilities and were able to apply them to their purchasing needs. The new technology allowed companies to enter the new market easily at a relatively low cost investment. The prospects promised extraordinary rates of growth of the e-market. The profit expectations were high. Companies invested billions of dollars in internet retailing firms. Many internet based e-business companies like Amazon, Napster, eToys etc. were found in that period. But at the end of the 90s the prospects of them did not come up to one's expectations and a lot of the New Economy companies had to close down with tremendous loss for investors at the stock market. Today we speak of the “dot-com bubble”.

The following period is described as a “phase of consolidation and repositioning” (Riehm, 2003) which is still going on. In the 90th the internet was a “revolutionary new format” (Weitz, 2006) expected to replace stores and catalogues. Today companies and organisations have realized that it provides special opportunities for retailing: as a tool to complement store and catalogue offerings, to provide greater value to the customers (Weitz, 2006).

III. THE MARKET OF ONLINE RETAILING

The online retail market has seen since it beginning a quite dynamic growth. In Germany, besides the UK one of the biggest internet retail markets in Europe, the online turnover in 1999 was about EUR 1.3 billion and is expected to increase of around EUR 18.3 billion. Figure 2 describes the growth of the B2C online turnover as well as the numbers of online shoppers in Germany since 1999.

The new technology has disclosed “new avenues for the business” (Pyle 1996). Basically two forms of internet retail models exist. On the one hand the pure online shops without any physical outlets (e.g. Amazon.com) and on the other hand the companies which follow the multichannel strategy. Multichannel retailing combines the internet sales with different traditional types of distribution, such as вЂ?offline’ stores/outlets (e.g. Tesco), direct mail selling (e.g. Neckermann) or a combination of the three (e.g. Conrad). Moreover the internet opens the B2C market to the wholesalers and manufacturers who can target the consumer directly (e.g. Dell, Apple, Radiohead). Figure 3 illustrates the different online retail models.

The internet provides retail organisations with “an extremely rich and flexible […] retail channel” (Doherty and Ellis-Chadwick, 2003) by offering the possibility to sell and promote products at any time and in a “boundless virtual space” (Doherty and Ellis-Chadwick, 2003). Especially for market newcomers and small businesses offering niche products the internet gives the opportunity to enter the market at low costs and relatively easy. Barriers in markets that were once in place, such as resulting from geographic boundaries or limited access to information are reduced. Internet technologies also allow on the one hand the ability to give more information about products and services and make it easier for consumer to evaluate and purchase them. On the other hand companies profit from the internet’s interactive capabilities which provide new tools to collect market research data on customer preferences, to personalise information and help them in their decision making process.

Consumers have now more alternatives and a greater selection of products and information. They benefit from higher price transparency which is two edged for the companies. However, there are new limitations of electronic shopping for consumers compared to the bricks and mortal retailing. The shopping experience, habits and the way to evaluate the choice of product is different. On the internet one is not able to use all five senses like touching, smelling, tasting, seeing and hearing. There is less personal attention for the buyer and one can not buy with cash money. The fact that consumers are able to search for more information on the products and prices has also the disadvantage that the information is very broad and often not practical. People get “lost in hyperspace” (Van Baal, 2006). Another critical for breakthrough of online retailing is privacy and security concerns.

Weitz (2006) defines two essential factors which affect the growth of the internet retailing: the Internet access and the degree to which electronic retailers exploit the benefits and address the limitation of electronic shopping.

IV. THEORY & INTERNET RETAILING

The retail business is complex and dynamic. Companies are constantly searching for new opportunities to enlarge their profit and growth. To achieve their goals and objectives they should stay flexible, open and competitive to the changes in the macro, task and organisational environments. But in reality organisations are often stiff and they rely on their operational routines. This kind of behaviour might jeopardise the firm’s competitiveness